DoubleLine’s Gundlach Says ‘Horrible Time’ to Flee Bonds

Jeffrey Gundlach, manager of the top-ranked DoubleLine Total Return Bond Fund, said investors shouldn’t exit bonds after global fixed-income markets had their worst month in nine years.

“It’s a horrible time to be exiting bonds,” Gundlach, chief executive officer of Los Angeles-based DoubleLine Capital LP, said today during a webcast presentation.

Bond yields probably won’t move much higher in the near term and may drop to 1.7 percent at year-end because the global economy isn’t strong enough to allow for an end of quantitative easing by the world’s central banks, he said. Quantitative easing has had a positive impact on the economy overall, he said.

Global bond markets posted their biggest monthly losses in nine years in May as the U.S. dollar rallied and stocks reached record highs. The more than $40 trillion of bonds in the Bank of America Merrill Lynch Global Broad Market Index fell 1.5 percent on average. Treasuries fell 2 percent amid speculation a strengthening U.S. economy will allow the Federal Reserve to reduce its monetary stimulus.

The Fed may reduce the amount of bond purchases, yet is still likely to keep quantitative easing in place, especially if rising rates start to cause problems, Gundlach said. Higher interest rates would push up mortgage rates, which, together with higher house prices, would make housing less affordable, Gundlach said.

Treasury 10-year yields approached a 14-month high today before reports this week forecast to show employers stepped up hiring. The U.S. 10-year note yield rose three basis points, or 0.03 percentage point, to 2.15 percent at 4:59 p.m. New York time, according to Bloomberg Bond Trader prices.

Gundlach said his favorite picks currently are bank loans, dollar-denominated emerging-market corporate bonds and non-agency mortgage-backed securities.

DoubleLine Total Return Bond Fund advanced at an annual average of 10.2 percent over the past three years, ahead of 99 percent of peers, and 1.5 percent this year, beating 88 percent of similarly managed funds, according to data compiled by Bloomberg.

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